You seem to be having big symbols inside smaller braces. You might want to put this into \left\{...\right\}. (There are other variants here: the constructs \bigl...\bigr and \biggl...\biggr can be used the way one uses \left...\right.)

However, I'd suggest that you draw diagrams in Tikz, if you'd like to see beautiful images. (The package tikz-cd is very good at this!)

Can you compile and see where the equation no. occurs. I want the number to apper at the right side of the diagram (that also to be in the centre). Thanks. \begin{equation*}\tag{1} \xymatrix@!C{A & B \ar[l]}\C& D \ar[l] \ar[u] } \end{equation}
–
sriMay 7 '13 at 8:30

@ Kan: Thanks for all your comments. Yes. Gathered comment really helped. Still have a small problem. Equation no. appears left side (@ center as i wanted) but i want it to be rightside. \begin{equation*}\tag{1} \begin{gathered}\xymatrix@!C{A & B \ar[l]}\D& E \ar[l] \ar[u] } \end{gathered}\end{equation}
–
sriMay 7 '13 at 8:37

@sri You can do that by passing the option [reqno] to your documentclass: eg, \documentclass[reqno]{amsart}.
–
kanMay 7 '13 at 8:40

Yes. It helped. I can't vote your answers (not having 15 points). Many thanks. I did mark the answer as right by clicking on the tick mark.
–
sriMay 7 '13 at 8:43